Gold steadies near $5,175 as strong dollar offsets safe haven demand

Friday 13 - 08:20

By: Dakir Madiha

Gold steadies near $5,175 as strong dollar offsets safe haven demand

Gold prices stabilized on Thursday after recovering from an earlier decline of nearly 1 percent, as bargain buying balanced pressure from a stronger U.S. dollar and fading expectations of near term interest rate cuts. Spot gold slipped 0.1 percent to around $5,173 per ounce, while U.S. gold futures for April delivery held steady near $5,178, according to Reuters.

The muted movement in the precious metal comes despite escalating tensions in the Middle East, where the conflict has entered its thirteenth day. Rising oil prices and geopolitical uncertainty would normally boost demand for traditional safe haven assets such as gold.

Instead, the market has been caught between competing forces since U.S. and Israeli strikes on Iran began on February 28. In the days following the escalation, gold surged above $5,400 per ounce before retreating sharply. Over the past week, prices have fluctuated between roughly $5,050 and $5,175, according to CNBC.

A stronger U.S. dollar has been a key factor limiting gains. The currency has climbed to multi month highs, making gold more expensive for buyers using other currencies and dampening international demand.

At the same time, energy markets have added to the economic uncertainty. Oil prices jumped more than 9 percent on Thursday, with Brent crude moving back above $100 per barrel after fresh attacks on energy infrastructure in the Middle East. The surge has intensified fears of prolonged supply disruptions and renewed inflationary pressure.

Higher energy costs have also weakened expectations for imminent interest rate cuts in the United States. In a note dated March 12, Goldman Sachs pushed back its forecast for the Federal Reserve’s first rate reduction to September instead of June, citing inflation risks tied to rising oil prices.

The bank now expects headline inflation measured by the PCE index to reach 2.9 percent by the end of the year, an upward revision of 0.8 percentage points. Core PCE inflation is projected at 2.4 percent. Goldman Sachs still anticipates a second rate cut of 25 basis points in December.

Economists at the bank warned that a higher inflation trajectory could complicate the Fed’s ability to begin easing monetary policy quickly. The revision marks the bank’s second adjustment this year, after it had already shifted expectations from March to June following weaker employment data.

Gold, which does not generate yield, typically benefits from lower interest rates. The prospect that borrowing costs may stay elevated for longer has removed one of the metal’s strongest sources of support.

Additional pressure has come from forced liquidations in financial markets. As global equities experienced heavy selling, some hedge funds facing margin calls sold gold holdings to raise cash, according to Reuters and Investing.com. The metal’s more than 20 percent rise since the start of the year made it a convenient asset to liquidate.

Gold prices have also eased in parts of South Asia. In India, the price of 24 carat gold dropped from above 162,000 rupees per 10 grams earlier in the week to around 161,444 rupees on Thursday. Pakistan also recorded declines in domestic gold prices, mirroring the global trend.

Investors are now focusing on upcoming U.S. economic data, particularly the personal consumption expenditures index for January scheduled for release on Friday. The report could influence interest rate expectations ahead of the Federal Reserve’s policy meeting on March 18.